TaxTMI 
TaxTMI 
2018 (10) TMI 1166
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....peals before the Income-Tax Appellate Tribunal, Mumbai. 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 1138/Mum/2016 for AY 2010-11, read as under:- "(1) On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition of Rs. 3,35,68,481/- on account of low GP without appreciating the fact that the assessee has only submitted a general reply with regard to the low GP during the year in comparison with the GP of the earlier years and not substantiated the same with facts and figures and therefore, the AO was correct in estimating the GP as he was not satisfied with the correctness of the accounts of the assessee. The Appellant prays that the order of the CIT-(A), on the above grounds be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground and /or add new grounds which may necessary." 3. The grounds of appeal raised by the assessee in the memo of appeal filed with the tribunal in ITA no. 620/Mum/2016 for AY 2010-11, read as und....
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....ssee factory is stated to be situated. Revenues Appeal in ITA no. 1138/Mum/2016-AY 2010-11 5.1 During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, the AO observed that the turnover in relevant previous year of the assessee has increased while the assessee has reported losses. The AO asked the assessee to submit comparative GP Ratio of preceding three years and justify the fall in GP ratio over the last three years. The assessee has earned GP ratio for the last three years as detailed hereunder:- Assessment year Total Turn Over (Rs.) Gross Profit (%) Net Profit 2008-09 18,33,19,831 24.61 5.68 2009-10 30,74,57,182 16.09 3.65 2010-11 41,08,01,086 7.92, N.A. Thus in the impugned assessment year under consideration before us, the GP ratio was 7.92% as against 24.61% earned by the assessee for AY 200809 and 16.09% for AY 2009-10. The assessee submitted before the AO that during the previous year under consideration, there was huge stock holding as at the end of the year. It was submitted that the monsoon was quite favourable and hence the yield of tobacco was huge. The market rate of tobacco....
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....arily by the AO. It was submitted that the prices of the raw materials have come down drastically which resulted in low GP ratio. It was submitted that accepted principles for valuation of inventory i.e. lower of cost or market price was followed and the said method of valuation is in sync with accounting standard AS-2 prescribed by ICAI. The assessee in order to justify that correct method of valuation was followed by it, relied upon the following judgments:- (i) Gujrat High Court in Echke Ltd. v. CIT (173 Taxman 79 Guj) (ii) Madras High Court in the case of K. Mohamad Adam Sahib v. CIT, 561 ITR 360 Madras HC. 6.3 The Ld. CIT(A) observed that no discrepancy was pointed out by AO nor any shortcoming in books of accounts were pointed by AO. It was observed by learned CIT(A) that the assessee has given reply that fall in gross profit ratio is due to the fall in the prices of the closing stock valuation. The AO merely rejected the explanation of the assessee and proceeded to estimate GP ratio. The learned CIT(A) observed that action of the AO is arbitrary as low GP ratio could be an indicator of probable suppression of income to trigger investigation but it cannot....
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....0 30,74,57,182 16.09 3.65 2010-11 41,08,01,086 7.92 N.A. As could be seen from above details of turnover and GP ratio of three years, the turnover of the assessee has increased from Rs. 18.33 crores during AY 2008-09 to Rs. 41.08 crores in AY 2010-11, while the GP ratio has fallen from 24.61% to 7.92% in the same period. The claim of the assessee for substantial fall in GP ratio is mainly resting on the contention that there was a bumper crop of tobacco which led to excess supply in the market leading to crash in prices of raw material wherein traders/buyers rushed to buy new crops of tobacco at lower prices. The assessee had claimed that since the assessee held old stock of tobacco in large quantities, it led to loss in value of stock in hand due to fall in prices of old tobacco as well lack of demand for old tobacco as the traders/buyers preferred buying new crop of tobacco. We have observed that the assessee has not placed any evidence on record to substantiate this contention of bumper prices and crash in prices of tobacco before any authorities including before tribunal and the claim is resting on statements which are not supported or corroborated with ....
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....by the authorities below. The assessee did not presented any cogent evidences to corroborate its contention as to bumper crop of tobacco and its prices crashing owing to bumper crop. None of the authorities below have also verified the claim of the assessee as to bumper crop and crash in prices and there is no evidence on record to justify such contention except quotations all dated 02-04-2010 from three traders/ agents proposing to buy different varieties of tobacco from the assessee at a particular price which is claimed by the assessee to be substantially lower prices due to bumper crop of tobacco. These quotations in the absence of corroborative evidence does not inspire confidence. The bonafide of change in method of valuation of raw material from „cost‟ basis to „cost or market value whichever is lower‟ has not been explained by the assessee. The method adopted by the assessee for valuing raw material held as closing stock is in variance to what is stated by tax-auditor to be method of valuation of stock. None of the authorities below have made any enquiry or verifications as to contentions/ evidences filed by the assessee and no verification of the cl....
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.... books of accounts which found itself manifested in AO making additions for said discrepancies in stock while framing assessment u/s 143(3) r.w.s. 153A. Thus, keeping in view totality of facts and circumstances of the case with a view to render justice to both the parties and fair play, we are of the considered view that the issue arising in this matter need to be set aside and restored to the file of the AO for fresh denovo determination of the issue on merits in accordance with law, after conducting necessary verifications and enquiry as is warranted under the circumstances enumerated above. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in denovo assessment proceedings in accordance with principles of natural justice in accordance with law. The evidences submitted by the assessee in denovo proceedings in its defence shall be admitted by the AO to be adjudicated on merits in accordance with law. This ground raised by Revenue is allowed for statistical purposes. We order accordingly. ITA NO.620/MUM/2016-AY 2010-11 9 The second issue before us arose is in the appeal filed by the assessee and concern itself wit....
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....missal of the appeal by learned CIT(A), the assessee filed second appeal before the tribunal. Before us arguments have been advanced by Ld. Senior Counsel for the assessee in support of the contention while Ld. DR supported order of authorities of below. On being asked by the Bench about the details of the employees children who were studying in the school during the relevant period and other details concerning the school such as location of the school and other school in the vicinity, total children studying in the school, details of children of employees who were studying in the said school etc. so as to justify and prove direct nexus of these expenses with business of the assessee so as to prove that these expenses were wholly and exclusively incurred for the business and the assessee. The Ld. Senior Counsel for the assessee submitted that presently these details are not readily available on record but if an opportunity is granted by setting aside and restoring the matter to the file of the AO for framing denovo fresh assessment, the assessee will produce all the records before the AO which AO can verify. Thus in nutshell prayer is made by learned Senior Counsel for the assessee....